UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
ACTV, Inc
(Exact name of registrant as specified in its charter)
Delaware 94-2907258
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas
New York, New York 10020
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(Address of principal executive offices) (Zip Code)
(212) 217-1600 (Registrant's telephone number, including area code)
- ---------------
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
- ------------------- ------------------------------------
Common Stock, Par Value $0.10 Boston Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $0.10 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No___
As of May 17, 1999, there were 37,563,269 shares of the registrant's common
stock outstanding.
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
1998* 1999
------------ ------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents................ $5,188,770 $3,706,938
Accounts receivable-net.................. 501,768 553,848
Education equipment inventory............ 110,405 77,231
Other.................................... 773,613 344,706
------------ ------------
Total current assets................. 6,574,556 4,682,723
------------ ------------
Property and equipment-net................... 2,365,775 2,607,211
------------ ------------
Other Assets:
Patents and patents pending.............. 832,336 841,874
Software development costs............... 1,098,756 1,254,169
Goodwill................................. 2,214,816 2,108,223
Other.................................... 519,802 414,966
------------ ------------
Total other assets................... 4,665,710 4,619,232
------------ ------------
Total ............................ $13,606,041 $11,909,166
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses..... $955,686 $1,492,037
Deferred stock appreciation rights........ 2,000,062 4,138,509
Preferred dividends payable............... 200,305 286,198
------------ ------------
Total current liabilities............. 3,156,053 5,916,744
Long-Term Notes Payable 4,315,016 5,882,118
Put warrant 1,371,624 --
Shareholders' equity (deficiency):
Preferred series A stock, $.10 par value,
1,000,000 shares authorized, issued and
outstanding 56,300 at December 31, 1998,
and 32,600 at March 31, 1999.............. 5,630 3,260
Preferred series B stock, $.10 par value,
1,000,000 shares authorized, issued and
outstanding 5,018 at December 31, 1998,
and March 31, 1999........................ 2,805,961 3,121,926
Common stock, $.10 par value, 65,000,000
shares authorized: issued and outstanding
29,759,459 at December 31, 1998,
33,611,255 at March 31, 1999.............. 2,975,946 3,361,125
Additional paid-in capital................ 71,068,230 72,896,983
Loans receivable from stock sales......... --
(199,900)
Accumulated deficit....................... (71,892,519) (79,272,990)
------------ ------------
Total shareholders' equity (deficiency) 4,763,348 110,304
------------ ------------
Total.............................. 13,606,041 11,909,166
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
*Derived from the Audited Financial Statements
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 1999
------------ -------------
Revenues:
<S> <C> <C>
Revenues........................... $361,247 $400,794
------------ -------------
Total revenues.................. 361,247 400,794
Cost of Sales...................... 47,603 54,777
------------ -------------
Gross profit.................... 313,644 346,017
Expenses:
Operating expenses................. 362,714 361,472
Selling and administrative......... 2,043,516 2,819,848
Depreciation and amortization...... 212,501 370,314
Amortization of goodwill........... 106,593 106,593
Stock appreciation rights.......... 63,594 3,410,824
------------ -------------
Total expenses.................. 2,788,918 7,069,051
Interest (income).................... (39,840) (51,022)
Interest expense..................... 200,044 230,681
------------ -------------
Interest expense (income) - net.... 160,204 179,659
Minority interest - subsidiary preferred
stock dividend...................... 136,659 --
------------ -------------
Net loss............................. 2,772,137 6,902,693
------------ -------------
Preferred stock dividend and accretion -- 477,778
------------ -------------
Net loss applicable to common shareholders $7,380,471
$2,772,137
============ =============
Basic and diluted loss per common share $.17 $.23
------------ -------------
Weighted average number of common
shares outstanding.................. 16,088,087 31,990,224
------------ -------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(2,772,137) $(7,380,471)
------------- -------------
Adjustments to reconcile net loss to net
cash used in operations:
Depreciation and amortization.................. 319,094 476,906
Stock appreciation rights...................... 63,594 3,410,824
Amortization of stock warrants................. 52,362 --
Notes receivable from stock sales.............. -- 199,900
Notes issued in lieu of cash................... -- 195,478
Stock issued in lieu of cash compensation...... 295,139 39,000
Common stock issued or reserved for
preferred dividends and accretion.............. 70,189 75,920
Changes in assets and liabilities:
Accounts receivable............................ (214,712) (52,080)
Education equipment inventory.................. -- 33,175
Other assets................................... (69,339) 445,053
Preferred dividends and accretions -- 401,858
Accounts payable and accrued
expenses....................................... (527,329) 536,350
------------- -------------
Net cash used in operating
activities................................. (2,783,139) (1,618,087)
------------- -------------
Cash flows from investing activities:
Investment in patents pending.................. (50,000) (23,176)
Investment in property and equipment........... (166,027) (412,696)
Investment in systems.......................... (53,566) (252,142)
------------- -------------
Net cash used in investing activities.............. (269,593) (688,014)
Cash flows from financing activities:
Net proceeds from debt issuance................ 3,306,190 --
Preferred stock dividends payable.............. 66,470 --
Net proceeds from put warrant.................. 1,371,624 --
Redemption of preferred stock.................. (565,759) --
Proceeds from equity transactions.............. 1,391,749 824,269
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Net cash provided by financing
activities......................................... 5,570,274 824,269
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Net (decrease) increase in cash and cash
equivalents........................................ 2,517,542 (1,481,832)
Cash and cash equivalents,
beginning of period............................ 554,077 5,188,770
------------- -------------
Cash and cash equivalents,
end of period.................................. 3,071,619 3,706,938
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ACTV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Series A Preferred Series B Additional Paid-
Shares Amount Shares Amount Shares Amount in-Capital Deficit
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
January 1, 29,759,459 $2,975,946 56,300 $5,630 5,018 $2,805,961 $71,068,230 $(71,892,519)
1999
----------------------------------------------------------------------------------------------------
Issuance of
shares for
services 7,800 780 38,220
Issuance of
shares in
connection
with exchange
of preferred
stock 445,614 44,561 (23,700) (2,370) 33,728
Issuance of
shares in
connection
with exercise
of stock
options &
warrants 3,398,382 339,838 1,756,805
Net loss (6,902,693)
Preferred
dividends &
accretions 315,965 (477,778)
----------------------------------------------------------------------------------------------------
Balances
March 31,
1999 33,611,255 $3,361,125 32,600 $3,260 5,018 $3,121,926 $72,896,983 $(79,272,990)
=====================================================================================================
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 and 1999
1. The consolidated financial statements are unaudited. In the opinion of
management, these consolidated financial statements reflect all normal,
recurring adjustments necessary for a fair presentation of the results for
all periods. The financial results for the interim periods presented are
not necessarily indicative of the results to be expected for either
succeeding quarters or the full fiscal year.
2. For a summary of significant accounting policies and additional financial
information, see the Annual Report on Form 10-K for the year ended December
31, 1998 as filed by ACTV, Inc. (the "Company"). The Company's policy is to
capitalize the cost of computer software production once technological
feasibility is established upon completion of a detailed program design or
upon completion of a working model. The Company's balance sheets at March
31, 1999 and December 31, 1998 reflect capitalized software production
costs of $1,254,169 and $1,098,756, respectively.
3. ACTV, Inc.'s balance sheets at March 31, 1999 and December 31, 1998
reflect expense accruals of $4,138,509 and $2,000,062, respectively,
related to the Company's stock appreciation rights (SAR) plan. No SARs were
exercised for cash during the first quarter of 1999. The accrual at March
31, 1999 is based on the closing market price of the Company's common stock
of $11-3/8 on that date for all employees holding stock appreciation rights
(SARs), with the exception of Messrs. Samuels, Reese, and Crowley. These
executive officers agreed to limit their compensation and the corresponding
liability to the Company related to all of their vested stock appreciation
rights based on a common stock price of $3-15/16, and further agreed to be
paid in unregistered common stock in lieu of cash for all of their vested
SARs. As a result of these agreements, the Company's stock appreciation
rights expense for the first quarter of 1999 was approximately $3.2 million
less than it would have been otherwise.
4. The Company's balance sheets at December 31, 1998 also reflect a contra
shareholders' equity (deficiency) amount of $199,900, related to a loan
made by the Company to an employee in August 1995 that was paid off during
the first quarter of 1999.
5. In January 1998, the Company's subsidiaries, ACTV Entertainment, Inc., (the
"Issuer") and The Texas Individualized Television Network, Inc., a
wholly-owned subsidiary of the Issuer ("Texas Network"), entered into a
Note Purchase Agreement, dated as of January 13, 1998 (the "Agreement")
with certain private investors (the "Purchasers"). Pursuant to the
Agreement, the Purchasers purchased $5.0 million aggregate principal amount
notes from the
<PAGE>
Issuer and Texas Network. The notes bear interest at a rate of 13.0% per
annum, payable semi-annually, with principal repayment in one installment
on June 30, 2003. During the term of the note, the Issuer may, at its
option, pay any four semi-annual interest payments in kind rather than in
cash, with an increase in the rate applicable to such payments in kind to
13.75% per annum. The Note is secured by the assets of the Texas Network,
and is guaranteed by ACTV, Inc.
In connection with the purchase of such note, the Purchasers received on
January 14, 1998 a warrant (the "Warrant") which allowed the holder to
purchase up to 17.5% of the fully-diluted shares of common stock of Texas
Network or the right, through July 14, 1999, to exchange the Warrant for
such number of shares of the Company's Common Stock, at the time of and
giving effect to such exchange, equal to 5.5% of the fully diluted number
of shares of Common Stock outstanding, after giving effect to the exercise
or conversion of all then outstanding options, warrants and other rights
to purchase or acquire shares of Common Stock.
For accounting purposes, the Company allocated approximately $1.4
million to the value of the Warrant. The Warrant was included outside of
Consolidated Shareholders' Equity (Deficiency), due to its cash put feature
and was being amortized as additional interest expense. The Warrant was
exercised during the first quarter of 1999.
6. During May 1999, the Company redeemed all of the outstanding Series B
Preferred Stock for a total of approximately $5.8 million, which represents
a 10% premium above the stock's face value plus accrued dividends. Because
the preferred stock was convertible into common stock at $2.00 per
share beginning in November 1999, by redeeming this preferred stock the
Company avoided the possible future issuance of more than 2.8 million
shares of common stock.
During 1996, the Company raised approximately $9.1 million net in net
proceeds from the private placement of 5% exchangeable preferred stock
(the "Exchangeable Preferred Stock") issued by its wholly-owned subsidiary
and convertible into shares of the Company. The Exchangeable Preferred
Stock was convertible into Common Stock of ACTV, Inc., beginning January
1, 1997. A preferred stock accretion of $136,659 was recorded and included
as minority interest for the three months ended March 31, 1998.
In November 1998, ACTV issued 5,018 shares of Series B Convertible
Preferred Stock, common stock, and warrants to purchase approximately 1.95
million shares of common stock at $2.00 per share as a partial exchange
for approximately 179,000 shares of exchangeable preferred stock, which
had been issued by a subsidiary of ACTV. The excess of the fair value of
this consideration over the carrying value of the convertible preferred
stock for which it was issued is included in Minority Interest -
Subsidiary Preferred stock dividend and accretion in the accompanying
statement of operations. The Series B Preferred had a liquidation
preference $1,000.00 per share and paid a dividend, in cash or accumulated
and paid in common stock upon conversion, of 10% per annum.
<PAGE>
7. The Company made no cash payments of interest or income taxes during the
three months ended March 31, 1998 and 1999.
8. ACTV, Inc. has developed proprietary and patented software technologies for
two principal business segments, Individualized Television and HyperTV.
Individualized Television software provides the tools needed to create live
or pre-recorded television programming that individualizes what the viewer
sees and hears. The first commercial digital application of Individualized
Television will be a subscription television network that presents regional
sports programming. HyperTV software enables the simultaneous delivery of
streamed video and complementary Internet content. The first commercial
application of HyperTV was eSchool Online, designed for the online
education market. Currently, all of the Company's revenues are derived from
sales of eSchool Online software and related services. The operating
segments, Individualized Television and HyperTV, have been determined based
on the way the Company's business is managed.
Information concerning the Company's business segments for the periods
ending March 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
Revenues
<S> <C> <C>
Individualized Television $ -- $ --
HyperTV 361,247 400,794
Unallocated corporate -- --
---------------- ----------------
Total $361,247 $400,794
================ ================
Depreciation & Amortization
Individualized Television $164,930 $189,980
HyperTV 17,854 144,120
Unallocated Corporate 136,310 142,807
---------------- ----------------
Total $319,094 $476,907
================ ================
Interest Expense (Income)
Individualized Television $163,018 $216,726
HyperTV (864) 2,281
Unallocated corporate (1,950) (39,348)
---------------- ----------------
Total $160,204 $179,659
================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1998 1999
Net Loss
<S> <C> <C>
Applicable to Common Shareholders
Individualized Television $1,076,121 $1,176,232
HyperTV 409,270 676,324
Unallocated corporate 1,286,746 5,527,915
---------------- ----------------
Total $2,772,137 $7,380,471
================ ================
Capital Expenditures
Individualized Television $16,290 $304,124
HyperTV 161,748 350,128
Unallocated corporate 91,555 33,762
---------------- ----------------
Total $269,593 $688,014
================ ================
Current Assets
Individualized Television $2,979,129 $1,201,482
HyperTV 773,854 846,245
Unallocated corporate 2,821,573 2,634,996
---------------- ----------------
Total $6,574,556 $4,682,723
================ ================
Total Assets
ACTV Entertainment, Inc. $6,076,012 $4,558,158
HyperTV 1,064,636 1,458,394
Unallocated corporate 6,465,393 5,892,614
---------------- ----------------
Total $13,606,041 $11,909,166
================ ================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
To the extent that the information presented in this report discusses
financial projections, information or expectations about our products or
markets, or otherwise makes statements about future events, such statements are
forward-looking. Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements. These include, among others:
o the successful and timely development of new products;
o market place acceptance of our new products; and
o the availability of sufficient funding to effect such product
development.
ACTV, including its two principal wholly-owned subsidiaries, ACTV
Entertainment, Inc. and HyperTV Networks, Inc. has developed proprietary and
patented software technologies that we call Individualized Television and
HyperTV(TM). These software technologies enable the creation of interactive
programming for both digital television and for applications merging television
and the Internet.
Our Individualized Television software technology provides the
tools needed to create live or pre-recorded television programming that
individualizes what the viewer sees and hears. The proprietary software can
remember all of the choices the viewer keys in with his TV remote control,
allowing the television to literally respond to each viewer with tailored
programming and advertising content. Using a standard digital remote control,
television viewers switch channels seamlessly and instantly among multiple,
real-time feeds of live or pre-recorded video, audio and data. Because there is
no observed gap between the viewer's selection and the display on the
television, viewers do not realize that they have changed channels, but perceive
they are watching one channel that is responsive to their choices. In fact,
Individualized Television is a multi-channel telecast of several elements of
related programming material such as instant replay on demand, an isolation
camera on a star player, and statistical data. To receive our individualized
programming a viewer needs a standard digital television set-top box that is
compatible with our Individualized Television software technology.
The first commercial digital application of Individualized
Television will be a subscription television network that presents regional
sports programming. We plan to launch the network in the region served by FOX
Sports Southwest. FOX Sports Southwest distributes programming to more than 5
million households in Texas, Louisiana, Arkansas, Oklahoma and nine New Mexico
counties. The regional network will feature individualized telecasts of
professional sports programming, along with college sporting events from the Big
12, Southeastern, Southland and Western Athletic Conferences. We have an
agreement with ATT Broadband (formerly Tele-Communications Inc.), to distribute
and market our regional network
<PAGE>
to its digital television subscribers in Texas. Later, we plan to expand into
other regions served by FOX Sports Net.
ACTV's first national individualized programming will be
developed and managed through a joint venture formed in September 1998 with
Liberty Media Corporation, called LMC IATV Events, LLC. LMC IATV Events, through
an exclusive license from ACTV, has the right to produce and distribute
telecasts of major events incorporating our individualized programming
enhancements. As consideration for granting such a license, ACTV received a
fixed one-third equity interest in the joint venture, with no obligations to
make additional capital contributions.
HyperTV(TM) software technologies enable the simultaneous
delivery of streamed video and complementary material available on the World
Wide Web directly to personal computer users or television viewers. We announced
the introduction of HyperTV(TM) for entertainment applications in March 1999.
The first commercial application of HyperTV(TM) was eSchool online, designed
for the on-line education market including K-12 classrooms, universities,
distance learning programs, and corporations. eSchool software products
include content creation software, student and teacher user software, and
software for assessing and storing student performance. We also provide clients
with Internet content design assistance, the hosting of educational programs on
our computer servers, and technical consulting. Currently, all of our revenues
are derived from sales to the on-line learning market.
Since its inception, we have incurred operating losses approximating $79
million related directly to the development and marketing of the Individualized
Television and HyperTV.
It is our belief that we have adequate funding to launch our first
regional television network. However, there is no assurance that we will secure
the funding necessary to effect additional launches in other regions, or that
other factors might not delay or prohibit the successful implementation of the
our regional network strategy.
RESULTS OF OPERATIONS
Comparison of Three Month Periods Ended March 31, 1999 and March 31, 1998
During the three month period ended March 31, 1999, our revenues
increased 10.9%, to $400,794, from $361,247 in the three month period ended
March 31, 1998. All of our revenues in the first quarter of 1999 and 98% of
revenues in first quarter 1998 were derived from sales of our
Internet/television convergence product, HyperTV, to the online learning market.
The cost of sales, as a percentage of sales revenue, in the more recent
quarter was 13.7%, compared to 13.2% in the corresponding 1998 quarter.
Total expenses excluding cost of sales, interest expense, and minority
interest - preferred stock dividends and accretion increased approximately 154%
in the first quarter of 1999, to $7,069,051, from $2,788,918 in the first
quarter of 1998. The increase was principally the result of sign
ificantly higher
stock appreciation rights (SARs) expense, which was the result of a large
increase in the market price of our common stock in the first quarter of 1999.
The SAR expense for the three months ended March 31, 1999 was $3,410,824,
compared to $63,594 for the three
<PAGE>
months ended March 31, 1998. Selling and administrative expense also increased
in the more recent quarter, to $2,819,848, from $2,043,516, due chiefly to an
increase in non-cash compensation.
Depreciation and amortization expense increased $157,813 in the first
quarter of 1999, to $476,907, from $319,094 in the first quarter of 1998, due
primarily to increased amortization of HyperTV software development costs.
We incurred interest expense in the first quarter of 1999 of $230,681,
compared to $200,044 in the first quarter of 1998. The interest expense for both
periods relates to a note with an original face value of $5 million issued by a
subsidiary of ACTV, Inc. in January 1998. The increase in interest expense in
the more recent quarter is due mainly to an increase in the note's principal
value from payments of interest in kind rather than in cash. In addition, the
note was outstanding for the full 1999 quarterly period, compared to only a
portion of the 1998 quarterly period.
Interest income in first quarter of 1999 was $51,022, an increase of
28%, compared with $39,840 in the first quarter of 1998. The increase resulted
from higher available cash balances in the more recent period.
For the three months ended March 31, 1999, we accrued $477,778 for
preferred stock dividends and accretion, compared to $0 for the three months
ended March 31, 1998. In the three-month period ended March 31, 1998, we accrued
$136,659 for minority interest -- subsidiary preferred stock dividends and
accretion, related to exchangeable preferred stock issued by a subsidiary of
ACTV, Inc. No exchangeable preferred stock was outstanding during the first
quarter of 1999. We paid $70,189 in preferred dividends during the first quarter
of 1998, by issuing shares of our common stock.
For the three months ended March 31, 1999, our net loss applicable to
common shareholders was $7,380,471 or $.23 per basic and diluted share, an
increase of 266% compared to the net loss of $2,772,137 or $.17 per basic and
diluted share for the three months ended March 31, 1998. The increase in loss
applicable to common shareholders during the more recent quarter was the result
principally of higher stock appreciation rights expense in the more recent
quarter.
Comparison of Three Month Periods Ended March 31, 1998 and March 31, 1997
During the three month period ended March 31, 1998, our revenues
decreased 60.2%, to $361,247, from $907,944 in the three month period ended
March 31, 1997. All but 2% of total revenues in the first quarter 1998 were
derived from sales of Internet/television convergence products, compared to the
first quarter of 1997, when all revenues were related to television-based
education hardware and content.
The cost of sales, as a percentage of sales revenue, decreased to 13% in
the more recent quarter as compared to 31% in the corresponding 1997 quarter.
The decrease was the result of the shift in the more recent quarter, as noted
above, to the sale of Internet/television convergence products and services,
which carry a higher profit margin than our television-based education revenue
sources.
<PAGE>
Total expenses excluding cost of sales, interest expense, and minority
interest - preferred stock dividends and accretion increased approximately 26%,
by $580,247 in the first quarter of 1998, to $2,788,918, from $2,208,671 in the
first quarter of 1997. The increase was due principally to increases in stock
appreciation rights (SARs) expense and depreciation expense. We recognized an
expense related to SARs of $63,594 in the more recent quarter, compared to
income in the amount of $277,037 in the first quarter of 1997. The difference of
$340,631 was the result of an increase in the price of our common stock during
the first quarter of 1998, compared to a price decrease during the first quarter
of 1997.
Depreciation and amortization expense increased $164,521 in the first
quarter of 1998 to $319,094, from $154,573 in the first quarter of 1997, due to
higher depreciation in the more recent quarter related primarily to our master
control facility in Texas, which was completed in the last quarter of 1997.
We incurred interest expense and accretion in the first quarter of 1998
of $200,204, compared to $0 interest expense and accretion in the first quarter
of 1997. The increase was the result of the issuance of debt and associated
warrants in January 1998 by a wholly-owned subsidiary of ACTV, Inc. Interest
income in the first quarter of 1998 was $39,840, a decrease of 31%, compared
with $58,137 in the first quarter of 1997. The decrease resulted from lower
available cash balances and prevailing market interest rates in the more recent
period.
For the three months ended March 31, 1998 and the three months ended
March 31, 1997, we accrued $136,659 for dividends and $746,542 for dividends and
accretions, respectively, related to exchangeable preferred stock issued in
August 1996 by one of our wholly-owned subsidiaries, which was accounted for as
minority interest. We paid $70,189 and $2,679 in preferred dividends during the
first quarter of 1998 and the first quarter of 1997, respectively, by issuing
shares of our common stock.
For the three months ended March 31, 1998, our net loss was $2,772,137
or $.17 per basic and diluted share, an increase of 22% compared to the net loss
of $2,271,302 or $.19 per basic and diluted share for the three months ended
March 31, 1997. The increase in loss applicable to common shareholders during
the more recent quarter was the result of lower gross revenues and higher
depreciation expense, stock appreciation rights expense and interest and
accretion expense in the more recent quarter.
Liquidity and Capital Resources
Since its inception, ACTV, Inc. (including its operating subsidiaries)
has not generated revenues sufficient to fund its operations, and has incurred
operating losses. Through March 31, 1999, we had an accumulated deficit of
approximately $79 million. Our cash position on March 31, 1999 was $3,706,938,
compared to $5,188,770 on December 31, 1998.
During the three months ended March 31, 1999, we used $1,618,087 in cash
for operations, compared with $2,783,139 for the three months ended March 31,
1998. The decrease in the first quarter 1999 was due principally to changes in
assets and liabilities. We met our cash needs in the first quarter of 1999 from
the exercise of warrants and options during the quarter and
<PAGE>
from the remaining proceeds of stock sales during 1998 to private investors
totaling $10.8 million. We met our cash needs in the first quarter of 1998 from
a series of private placements of our common stock (net proceeds of $1.4
million) with an institutional investor during this period and from the issuance
of debt by a wholly-owned subsidiary (net proceeds of $4.7 million).
With regard to investing activities, in the three months ended March 31,
1999 and 1998, respectively, we used cash of $688,014 and $269,593,
respectively. Investing activities in both years were related to television and
computer equipment, patents and systems.
ACTV, Inc.'s balance sheets at March 31, 1999 and December 31, 1998
reflect expense accruals of $4,138,509 and $2,000,062, respectively, related to
the Company's stock appreciation rights (SAR) plan. No SARs were exercised for
cash during the first quarter of 1999. The accrual at March 31, 1999 is based on
the closing market price of the Company's common stock of $11-3/8 on that date
for all employees holding stock appreciation rights (SARs), with the exception
of Messrs. Samuels, Reese, and Crowley. These executive officers agreed to limit
their compensation and the corresponding liability to the Company related to all
of their vested stock appreciation rights based on a common stock price of
$3-15/16, and further agreed to be paid in unregistered common stock in lieu of
cash for all of their vested SARs. As a result of these agreements, the
Company's stock appreciation rights expense for the first quarter of 1999 was
approximately $3.2 million less than it would have been otherwise.
During April 1999, we raised approximately $8.6 million in total net
proceeds from the private sale of common stock and from the exercise of
warrants. In addition, we received commitments for an additional $14 million of
funding from a private investor, pursuant to the purchase of unregistered stock
and the exercise of warrants.
During May 1999, we redeemed all of the outstanding Series B Preferred
Stock for a total of approximately $5.8 million, which represents a 10% premium
above the stock's face value plus accrued dividends. Because the preferred stock
was convertible into our common stock at $2.00 per share beginning in November
1999, by redeeming this preferred stock we avoided the possible future issuance
of more than 2.8 million shares of common stock.
We believe that our current funds, taking into account the $8.6 million
raised in April and the commitments we have received for $14 million of
additional funding, will enable us to finance our operations at their present
level for at least the next twelve months. Such belief is based on assumptions
that may not materialize, in which case we may require additional capital to
finance such operations during this period. While we believe that we have
adequate funds to launch and operate our planned southwest regional network, we
will need additional funding for regional network expansion.
During April 1999, we invested approximately $400,000 in computer
equipment and related software to build a point of presence for our HyperTV
entertainment application. We do not have any additional material contractual
commitments for capital expenditures. However, the expansion of our
individualized television business into markets beyond the southwest will likely
require investments in master control facility equipment for each additional
regional network. Similarly, the growth of HyperTV for entertainment
applications may require that we expand the capacity of our point of presence or
create additional points of presence by further investing in computer equipment
and related software.
<PAGE>
Impact of Inflation
Inflation has not had any significant effect on the Company's operating
costs.
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Company is a party.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Loss per Share
27 Financial Data Schedule
(b) Reports on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTV, Inc.
Registrant
Date: May 14, 1999 /s/ William C. Samuels
---------------------------
William C. Samuels
Chairman, Chief Executive Officer
and Director
Date: May 14, 1999 /s/ Christopher C. Cline
---------------------------
Christopher C. Cline
Senior Vice President (principal
financial and accounting officer)
EXHIBIT 11
ACTV, INC. AND SUBSIDIARIES
COMPUTATION OF LOSS PER SHARE
Three Months Ended March 31, 1998 1999
(as restated)
------------- ------------
Weighted average shares outstanding.. 16,088,087 31,990,224
Common stock equivalents............. -- --
------------- ------------
Total....................... 16,088,087 31,990,224
============= ============
Net loss applicable to common
shareholders......................... $2,772,137 $7,380,471
============= ============
Basic and diluted loss per common
share $.17 $.23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTERLY PERIODS ENDED
MARCH 31, 1998, AND MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000854152
<NAME> ACTV, Inc
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 3,071,619 3,706,938
<SECURITIES> 0 0
<RECEIVABLES> 560,944 576,725
<ALLOWANCES> 43,188 22,877
<INVENTORY> 237,757 77,231
<CURRENT-ASSETS> 4,225,555 4,682,723
<PP&E> 3,599,145 4,377,383
<DEPRECIATION> 1,006,065 1,770,174
<TOTAL-ASSETS> 10,976,197 11,909,166
<CURRENT-LIABILITIES> 2,088,363 7,156,806
<BONDS> 3,679,877 5,882,118
0 0
8,620 3,125,186
<COMMON> 1,698,058 3,361,125
<OTHER-SE> (2,637,235) 7,616,069
<TOTAL-LIABILITY-AND-EQUITY> 10,976,197 11,909,166
<SALES> 361,247 400,794
<TOTAL-REVENUES> 361,247 400,794
<CGS> 47,603 54,777
<TOTAL-COSTS> 2,406,230 6,847,648
<OTHER-EXPENSES> 479,507 657,437
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 200,044 230,681
<INCOME-PRETAX> (2,772,137) (7,380,471)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,772,137) (7,380,471)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,772,137) (7,380,471)
<EPS-PRIMARY> (0.17) (0.23)
<EPS-DILUTED> (0.17) (0.23)
</TABLE>
